Before regulatory action hit the payments bank in 2024, Sharma had been exploring a transition towards a small finance bank (SFB), positioning Paytm to move beyond payments into lending and deposits. That pathway now stands closed.
The cancellation of Paytm Payments Bank’s licence last week has effectively ended the model under which One97 Communications ran its popular digital wallet service through the bank.
Industry sources said that possibility exists for the firm to reapply for a prepaid payment instrument (PPI) licence to revive its wallet, the growth runway for the segment has narrowed significantly due to competitive pressures, limited monetisation avenues, and the rise of alternatives such as UPI Lite.
The company on Saturday said it would voluntarily wind down its payments bank, adding that the licence cancellation is unlikely to have any material impact as its current operations run independently of the bank.
Paytm’s wallet was registered with its associate entity, Paytm Payments Bank, which issued these PPIs.
The company did not respond to an email seeking comment.
One97 Communications, the Noida-based firm which operates the Paytm brand, had been awaiting a decision on the regulatory restrictions of the payments bank to restart its wallet operations, even as it planned to bring the wallet ‘back home’.
For instance, in the third quarter of financial year 2024-25 (Q3 FY25), Paytm chief Sharma had said that the decision on the wallet was contingent on the final outcome of the payments bank.
“We want to do it. We are waiting for Paytm Bank’s final outcome and on the basis of that we’ll take the next step,” he had stated.
As per the bank’s annual report, it had 38 million full Know Your Customer (KYC) wallets and over 87 million total outstanding wallets. These collectively held balances amounting to Rs 998.4 crore as of FY25.
The bank faced regulatory restrictions in early 2024 which later led to the winding down of most of its operations including deposits, credit transactions, among other things.
This meant that customers could not add money to their wallets but could withdraw existing deposits leading to limited use over the past two years.
Limited growth in wallets
A year later in Q3FY26, Sharma had said it was a ‘promise to bring the wallet back home’.
However, the management believed that the wallet business wasn’t a big part of the industry going forward.
“We had talked about wallet profitability being Rs 500 crores in January 2024. We don’t think the product is that big in the industry going forward. So we want to bring it for consumer completeness because the consumer should have an option,” Madhur Deora, President and Group Chief Financial Officer (CFO), Paytm, had told analysts after the company’s Q3FY26 earnings.
He had added that the wallet did not remain a sticky and relevant part of the business any longer.
“We are big believers that consumers should have options, as many options as we can come up with. So Postpaid is an option, wallet is an option, but one shouldn’t think of wallet as being as sticky, as relevant, as important today as it was three years ago,” he had said.
An industry source said that while use-case-specific PPIs—such as those for gifting, meals and transit—are gaining traction, wallet-based PPIs continue to lag at a time when real-time payments via Unified Payments Interface have become mainstream.
“Paytm can maybe apply for the PPI licence but they will also have to understand what kind of play they want to have in the market. E-Wallets are not as popular as they used to be before,” the person said.
As of March 2026, Paytm Payments Bank had 100.73 million outstanding PPI wallets. But, the active ones at the end of this period were 6.8 million, data from the Reserve Bank of India (RBI) shows.
In January 2024, this number was 630.7 million outstanding wallets.
Brokerage firm Emkay added that while there was no financial impact on Paytm despite the cancellation of its associate entity’s licence, the RBI’s communication was severe.
“We believe the RBI’s citing management conduct “prejudicial to the interest of depositors as also the public interest” and concluding that “no useful purpose or public interest would be served by continuation” is severe. While Paytm is legally ring-fenced, the tone of the order creates perception risk, in our view,” it said.
Despite that, the RBI had approved payment aggregator licence to Paytm in 2025 reflecting that the banking regulator was comfortable with the publicly listed entity’s compliance posture.
